Malta Essentials for excellence
Deloitte Malta Tax Services March 2012
Malta has one of the fastest growing financial services industries in the world. Financial Services already account for over 12% of the country’s GDP. This is expected to increase to over 25% by 2015.
Contents
3 Malta: A high-profile business centre 5 Malta: Essentials for excellence - Malta's International tax system - Taxation of companies - Taxation of individuals - Corporate flexibility - Attractive operating costs - Capable human resources - A step above the rest 9 Malta: The location of excellence - Holding companies - Principal companies - Inter-group finance companies - IP companies - Releasing companies - Aviation and shipping - Trusts - Funds, insurance and securitisation 12 Malta: Committed to success 14 Deloitte Malta 16 Malta Treaty Network
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Malta: A high-profile business centre Malta’s ever-increasing reputation as a forwardthinking, flexible and reliable centre for business is quickly beginning to precede it. Due to its competitive fiscal regime, adaptable, highly-skilled English-speaking workforce, and the remarkable quality of support service providers operating under global brands, Malta has positioned itself as a centre of excellence in a number of areas. Stability, flexibility and commitment are the driving factors which make investors feel particularly comfortable when doing business in Malta.
Stability, flexibility and commitment are the driving factors which make investors feel particularly comfortable when doing business in Malta
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Malta's essentials for excellence have turned Malta into the jurisdiction of choice for a growing number of international investors
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Malta: Essentials for excellence Malta has one of the most competitive fiscal regimes in the European Union. The workings of Malta’s tax system ensure a low effective corporate tax rate.
Malta’s international tax system Malta has one of the most competitive fiscal regimes in the European Union (EU). In addition to providing, as an EU Member State, access to all EU Directives, Malta has also concluded an extensive network of around 60 double taxation treaties, all of which are based on the OECD model. Malta does not generally withhold any tax on outbound dividends, interest or royalty payments. Moreover, the absence of thin-capitalisation and controlled-foreigncompany rules, the absence of specific transfer pricing regulations, the absence of capital and wealth taxes and the absence of entry and exit taxes, make Malta a preferred jurisdiction to allocate business. While advanced tax rulings are available, they are not required and informal revenue guidance is readily available if required. Taxation of companies The workings of Malta’s tax system ensure a low effective corporate tax rate. That is: • Companies that are both resident and incorporated in Malta are chargeable to tax, in Malta, on a worldwide basis. • Companies that are resident in, but not incorporated under the laws of, Malta are taxable in Malta on a source and remittance basis. This means that such companies are not liable to Malta tax on foreign source income, which is not actually remitted to Malta, and foreign source capital gains.
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• Companies that are not resident in Malta, such as Malta branches of foreign head quarters, are taxable in Malta on a source basis. This means that such companies are not liable to Malta tax on foreign source income and capital gains, irrespective whether these are received in Malta or otherwise. The overall Malta effective tax rate applicable to the taxable income of companies once distributed is in general approximately 5%. This is based on the opportunity for shareholders to claim, upon a dividend distribution in their favor, a refund of a portion of the Malta tax paid by the company on the distributed Deloitte Malta brochure: Tax services - March 2012 | 5
Malta: Essentials for excellence (cont...) profits. The 5% effective corporate tax rate is the lowest rate applicable to active trading profits within the EU. Generally, other categories of income such as interest, rent and royalties similarly benefit from this low effective tax rate. Taxation of individuals As in the case of companies, the actual Malta tax cost for individuals, similarly depends on the source of that person’s income, and on his tax status. Individuals are taxed at progressive rates the highest of which is 35%. However, a flat rate of 15% applies to certain expatriates working in the financial services and i-gaming industry in Malta. In terms of the 2012 budget, this regime is proposed to be extended to also include the manufacturing industry. In addition, Malta offers a beneficial tax scheme aimed at attracting foreign High Net Worth Individuals (HNWIs) to Malta. Under the scheme, HNWIs benefit from a beneficial tax rate of 15% on applicable income subject to a minimum annual tax obligation. Moreover, the HNWIs who wish to apply for the scheme are required to acquire or rent property in Malta of a minimum value.
Corporate flexibility Malta offers a wide range of legal forms which persons may utilise to structure their business. This grants flexibility and adaptability, and essentially caters for all forms of investment. These forms include private and public limited liability companies, limited and unlimited partnerships, trusts, foundations and investment and securitisation vehicles. Maltese law offers the possibility for companies that are incorporated under the laws of a foreign jurisdiction to continue as a company incorporated in Malta without triggering liquidation. This is particularly relevant for companies that wish to move away from an ‘offshore’ jurisdiction.
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Attractive operating costs Despite its world-class infrastructure, Malta boasts very competitive operating costs by western standards. This cost advantage is reflected in all related sectors, ranging from salary costs to professional fees, and from rental fees to licensing fees.
Capable human resources The quality of Maltese professionals is undoubtedly of a high calibre. Our wide expertise and the fact that English is a mother tongue for the working professional gives us a direct advantage.
The quality of life, economic and political stability and the unrivalled charm of this small yet progressive island have successfully won over a number of individuals who have in time opted to relocate their entire business to Malta or to setup home here A step above the rest The attractiveness of Malta’s investment environment is evidenced by the fact that a notable portion of international investors who enter the market for specific, predetermined purposes eventually opt to expand their activities in Malta. The quality of life, economic and political stability and the unrivalled charm of this small yet progressive island have successfully won over a number of individuals who have in time opted to relocate their entire business to Malta or to setup home here.
Some excellent fiscal essentials...
Some excellent non-fiscal essentials...
• Transparent tax regime and a low effective corporate tax rate of 0-5%
• English is official language
• No withholding taxes on outbound transactions • Remittance basis of taxation for foreign incorporated companies resident for tax purposes in Malta
• Wide range of experienced support service providers • Business friendly and political stable environment focused on financial services • Competitive business costs and easy set up
• Extensive tax treaty network
• Easy access to decision makers
• EU membership and Euro-zone
• Regulatory track record
• No specific transfer pricing rules
• Excellent flight connections to Europe, the Middle East, North Africa and North America
• Procedure for advanced tax rulings & informal revenue guidance available, but not required • Redomiciliation procedure with no entry or exit taxes & fair market value step-up on shift of residence to Malta • No thin-capitalisation rules and no controlled foreign company rules • No capital or wealth taxes
The quality of Maltese professionals is undoubtedly of a high calibre
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It's flexible business framework makes Malta the location of excellence for various investors and transactions
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Malta: The location of excellence Holding companies
Malta’s 5% effective corporate tax rate paired with the fact that the island has a politically stable, English speaking environment makes Malta well known for business model optimisation structuring and tax aligned supply chain management
Malta operates a broad and flexible participation exemption regime in terms of which dividends and gains derived from qualifying shareholdings (typically >10% of equity shares) resident in both EU and non-EU/ non-treaty countries are fully exempt. It is not per se necessary to rely on an active business test, a trading test, an asset test, a subject to tax test or on a minimal holding period. Malta’s participation exemption also applies to profits derived from qualifying foreign resident partnerships.
Principal companies Malta’s 5% effective corporate tax rate paired with the fact that the island has a politically stable, English speaking environment makes Malta well known for business model optimisation structuring and tax aligned supply chain management. Malta’s extensive treaty network facilitates mitigating cross-border issues relating, for example, to branches and permanent establishments. As a result, principal companies, e-commerce activities and procurement departments are just a number of areas that are often located in Malta.
Intra-group finance companies Over the years, Malta has gained international recognition as a reputable and robust financial centre. The island has recently experienced a rapid growth and increased dynamism in its financial sector, in which it now hosts a number of world-renowned group treasury companies. Malta’s strength as a hub for intra-group finance companies is based on the island having an excellent business infrastructure, EU compliant legislation, a sound banking system, a relatively low cost base, an attractive fiscal regime, including a low effective corporate tax rate of 0-5%, and a highly skilled, multilingual workforce.
IP companies Besides being a member of the World Intellectual Property Organisation (WIPO) and a party to a number of international agreements relating to intellectual property rights (IP), Malta is the preferred jurisdiction Deloitte Malta: Tax services - March 2012 | 9
Malta: The location of excellence (cont...) to allocate IP also from a fiscal perspective. In terms of Malta’s patent box, royalties and similar income derived from patents in respect of inventions are exempt from Malta tax. In terms of the 2012 budget, this regime is proposed to be extended to also include income derived from copyright and other non-patented IP. Royalties and other income derived from non-patented intangibles are taxed in Malta at the effective corporate tax rate of between 0-5%. Where a company transfers its domicile or tax residence to Malta, it may opt for a step-up in base cost of IP situated outside Malta. Tax amortisation, equally spread over 3 years, is available if the IP is used in a trade or business. There are no restrictions as to the exit of the IP from Malta and planning is available so as not to trigger a Malta tax exposure.
Leasing companies Attracted by its low effective corporate tax rate of 0-5% and its flexible business structure, countless international investors have opted to use Malta as a base for their leasing arrangements. The variety of leasing activities in Malta includes the leasing of yachts, aircraft, vehicles and other equipment. Lease arrangements can be structured as an operating or financial lease. Whilst financial leasing is a licensable activity, an exemption is applicable to intra-group transactions.
Aviation and shipping Having long-established itself as an unmatched flag of excellence for ship registration, Malta is now becoming a prime location for aircraft registration. Malta has fully-implemented the Cape Town Convention which facilitates and ensures maximum efficiency in all matters relating to the financing and leasing of such aircraft. Should this not suffice, the lease income of a resident company incorporated outside Malta from the leasing of an aircraft or aircraft engine used for the international transport of goods or passengers is tax-free (unless remitted to Malta).
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Trusts The tax implications of a trust created under Maltese law are dependent on various factors, such as the residence of the parties to the trust, the nature and location of the trust property and the relevant event in the life of the trust. From an international perspective, Maltese trusts may provide certain tax planning opportunities for non-residents, whilst simultaneously offering them the protection, security and estate planning benefits that come with the use of what is arguably the oldest and most flexible tool for estate planning and wealth management in the broadest sense.
Attracted by its low effective corporate tax rate of 0-5% and its flexible business structure, countless international investors have opted to use Malta as a base for their leasing arrangements The settlement of foreign assets on trust by a non-resident settlor for the benefit of non-resident beneficiaries would not normally trigger any Maltese tax implications for any of the persons involved. Maltese law also provides for the possibility for a licensed trustee to irrevocably elect to have the trust treated as a Malta company for tax purposes.
Funds, insurance and securitisation
Funds
The Maltese financial services industry is going through exciting times. The international financial service community is waking up to the fact that our jurisdiction is a fully fledged investment management domicile which boasts a statutory and regulatory regime fully compliant with international standards.
Malta offers a wide choice of regulated vehicles (funds) such as a SICAV, INVCO, limited liability company, liability partnership, unit trust, contractual fund and foundation. In addition, there is the option to set up a multiclass fund or an umbrella fund. The degree of regulation varies depending on the category of investors the fund is targeting. No investment restrictions apply to non-retail funds and the service providers (manager, administrator, custodian, etc.) may be located outside Malta.
The international financial service community is waking up to the fact that our jurisdiction is a fully fledged investment management domicile which boasts a statutory and regulatory regime fully compliant with international standards
The profits of a Malta fund are generally exempt from Malta tax and no Malta tax is levied on distributions to, or profits derived upon the transfer, redemption, liquidations of units in the fund, by foreign investors. Insurance Malta provides the opportunity for companies to locate their captive insurance business and insurance management activities within an OECD-recognised tax environment that combines tax efficiency within a robust regulatory framework. Captive insurance companies enjoy exemptions from certain licensing and regulatory criteria as well as an expedited licensing procedure and may be set up as protected cell company. Securitisation
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Securitisation transactions are, in principle, fully tax neutral. Any company, commercial partnership, trust or other approved legal structure can be set up as a securitisation vehicle provided notice is given to the regulator. Only public securitisation vehicles must obtain a license before issuing financial instruments to the public. Any asset, whether existing or future, whether movable or immovable, and whether tangible or intangible, including risks may be securitised.
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Malta: Committed to success 12th soundest banking sector Image: viewingmalta.com
World Economic Forum’s Global Competitiveness Report 2011 - 2012 (142 countries reviewed)
15th position in financial market development
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World Economic Forum’s Global Competitiveness Report 2011 - 2012 (142 countries reviewed)
10th worldwide rating in Business Readiness component in Network Readiness Index
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World Economic Forum’s Global Information Technology Report 2010 - 2011 (138 countries reviewed)
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4th worldwide rating in Government Readiness component World Economic Forum’s Global Information Technology Report 2010 - 2011 (138 countries reviewed)
1st ranked in European merchant marine industry The World Factbook, 2010
2nd worldwide ranking in Quality of Life Index International Living’s Quality of Life Index 2011
2nd safest country worldwide World Risk Report 2011 by the UN Institute for Environment and Human Security
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Deloitte Malta
Deloitte Malta is a multidisciplinary firm that offers a wide range of services. We are firmly established as one of Malta’s leading providers of professional services providing audit, tax, advisory and other related services to an extensive client base. We have the largest international tax practice in Malta and a dedicated financial services practice, serving a range of multinationals that operate through Malta to take advantage of our skills, competitive cost base, regulatory environment, EU membership and attractive tax system. The firm focuses on clients. We take great pride in our ability to provide quality services. We are a multi-skilled, multi-disciplined firm and we offer clients a wide range of industry-focused business solutions. Our experience has given us a significant advantage in terms of the extent and quality of our relationships with all relevant stakeholders in Malta. Deloitte Malta is ranked as tier one best tax firm in Malta by International Tax Review and for the past two years in a row, Deloitte Malta was awarded best National Tax Firm by International Tax Review’s Annual European Tax Awards. Deloitte Malta was given the award by the global publication International Tax Review in recognition of the exceptional quality and innovation of its international tax practice in Malta.
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Deloitte Malta is ranked as tier one best tax firm in Malta by International Tax Review and for the past two years in a row, Deloitte Malta was awarded best National Tax Firm by International Tax Review’s Annual European Tax Awards
Malta Treaty Network
EU States Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland
Italy Latvia Lithuania Luxembourg Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK
Other European States Albania Croatia Georgia Guernsey * Iceland Isle of Man Jersey
Montenegro Norway Russia * San Marino Serbia Switzerland * Turkey *
Rest of the world Australia Bahrain ** Barbados Canada China Egypt Hong Kong * India Israel * Jordan Korea Kuwait Lebanon
Libya Malaysia Morocco Pakistan Qatar Saudi Arabia* Singapore South Africa Syria Tunisia UAE Uruguay * USA
Treaty active Treaty pending * No treaty ** Applicable as from 01.01.2013
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Malta Contacts Conrad Cassar Torregiani Leader Cross Border Tax Services ctorregiani@deloitte.com.mt Astrid Vroom Senior Manager International Tax Services avroom@deloitte.com.mt Jevgenija Pavlova Assistant Manager International Tax Services jpavlova@deloitte.com.mt
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